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Business Strategy

Why Crossing Industries Can Be More Than Worth the Risk

March 30, 2017September 25, 2017

Today’s disruptive technologies blur the lines between industries, giving rise to new threats from unforeseen competitors and creating unexpected partnerships. Telecommunications companies are offering financial services. Technology firms are building cars. Retailers are providing health care. Companies need to make big changes to stay in business, according to Rufus Franck, founder of Consultants 500. In fact, only one-third of today’s large companies are expected to survive the next 25 years, he told Forbes.

Business leaders must be willing to shake up their business models and build partnerships across industries to access new customers and remain competitive. Morphing and merging industries doesn’t come without risk, but there are ways to shock-proof your organization so that it can overcome those risks and benefit from opportunities — whether it’s new data insights or a more rewarding experience for customers. “Digitization is a double-edged sword,” said Zeus Kerravala, founder and principal analyst at ZK Research. “Sure, your business can be hurt and you can go away very fast, but on the flip side, you can disrupt the market you’re in very quickly.”

So what does it take to manage the risks of industry convergence and maximize the opportunities? Planning for and implementing change to organizational culture is a key factor in successful cross-industry convergence, according to Charles King, president and principal analyst at Pund-IT. “Successful disruption typically requires companies to embrace cultural changes,” King said. “Those changes are often more significant and uncomfortable than adopting new processes and technologies.”

Companies today must be able to spot and capitalize on opportunities in new industries to stay competitive. Consideration of partnership opportunities will also require open communication among executives, according to King. “If C-level executives have come to a decision to push forward, they need to be well prepared to explain the business case and consider the potential problems that occur if they ignore the opportunity,” King said.

Manufacturer Bosch is one such player that has successfully entered multiple industries. Its offerings range from automotive electronics to household appliances. “Traditional manufacturing businesses must rework the structure and culture of their organization to address rapidly changing client expectations,” wrote Forrester Research analyst Dan Bieler in an August 2016 blog post. “Bosch is a fascinating example of how a traditional manufacturing firm can successfully transition into a leading digital business.” Bosch formed a software engineering division to serve a central role to spur the company’s digital transformation, according to Bieler.

Even companies born digital are entering other spaces. Social media company Snapchat joined forces with the eyewear industry to create its Spectacles product. The wearable sunglasses enrich the customer experience by allowing users to snap videos using their sunglasses and then share the files on Snapchat.

Another way of getting a foot in new industries is through acquisitions. Intel purchased Israeli technology company Mobileye for about $15 billion to capitalize on the data opportunities in the autonomous vehicle market. Mobileye makes the chips for cameras in self-driving cars. “They’re paying a huge premium in order to catch up, to get into the front of the line, rather than attempt to build from scratch,” Mike Ramsey, an analyst with technology researcher Gartner, told Bloomberg.

In another acquisition, Intel bought Recon Instruments to gain a foothold in the wearable computing space. Recon offers the Recon Jet smart eyewear for sports and high-intensity work environments.

Forrester Research projects that 14.4 million U.S. workers will adopt smart eyewear at work by 2025. With that adoption comes a growing market that Intel has positioned itself to serve. Sometimes companies pay the price for not exploring new industries. Although Kodak had developed the first digital camera in 1975, it didn’t capitalize on the new technology for fear of cannibalizing its film business.

Finding the Right Partnerships

Perhaps the most explored route to competing in new industries is through partnerships. Overcoming discomfort with alliances and a reflexively proprietary mindset is proving to be a hurdle for many companies that are eyeing industry convergence. There is not, however, a lack of awareness. In PwC’s 2016 CEO Pulse, 56 percent of CEOs surveyed predict a large existing player from another industry will move into their industry.

“Most businesses like to keep their strategic crown jewels under lock and key,” King said. He commonly sees executives who “are not as familiar with collaborative processes as they should be, especially when it comes to working with companies that are direct competitors.”

In the 2016 “Embracing a Digital Future” report, from Dell and Vanson Bourne, 46 percent of respondents cited competition from peers as a motivation to transform their businesses.

Every business must become digitally focused to survive and grow, and a key driver of digital transformation is the openness of company leaders to find viable partnerships for growth. To form a successful partnership, companies must place their bets in the right place at the right time and consider providing at least one of the following values for the customer.

Combine services to make experiences easier:A combination of the health care, insurance, technology and retail industries, telehealth provides the convenience of allowing patients to consult with a clinician and fill prescriptions in a retail setting while using medical sensors to send vital data to clinicians. American Well’s telehealth system allows doctors to connect with patients remotely in a clinic located in pharmacies. In one partnership, the company has joined efforts with Cleveland Clinic and CVS MinuteClinic, which are walk-in clinics within CVS retail stores. “This three-way partnership is significant in that, for the first time, Cleveland Clinic doctors will be available to MinuteClinic customers in Ohio via telehealth, creating a highly impactful combination of services that greatly enhance the patient experience,” said Dr. Ido Schoenberg, chairman and CEO of American Well. “This is the future of telemedicine — or simply, medicine.”

Create unexpected product alliances: Wearables are an example of how those partnerships can function and add value to the respective businesses, as seen with Intel’s acquisition of Recon. At the SXSW conference, held mid-March in Austin, Google and Levi’s unveiled their Commuter smart jean jacket. It allows users who bike to work to receive phone calls, view the time and look up directions just by tapping and swiping their sleeves. Companies such as Under Armour and Nike have also partnered with tech companies by offering wearable computing products.

Build customer synergies: A key aspect of partnering across industries is maximizing the synergies that occur through technology to create unique customer experiences. The Absolut Company, the Stockholm-based beverage company, has collaborated with Facebook, Lyft and Gratafy, an ecommerce platform that helps brands geotarget customers. Using Gratafy technology, Absolut’s bot selects customers over 21 in Chicago, Denver and Washington, D.C., sending them free cocktail couponsto be used at bars. If customers opt in to try an Absolut cocktail in one of 50 restaurants or bars, they can get a Lyft ride home up to $20.

When considering a partnership, companies must also know when to abandon a new partnership if a deal doesn’t create enough value to scale. “Test first and if you see a market there, then expand,” said Scott Jordan, co-founder and CEO of ScotteVest, which makes clothing with specialized pockets for mobile devices. “Don’t just jump on bandwagons just because they seem appealing.”

When ScotteVest was considering partnering with ICP Solar Technologies to incorporate solar panels in its Solar ScotteVest, it took a slow approach to limit overall risk. The panels allowed users to charge their mobile devices. “We started small, tested the market, and capitalized on the PR opportunities and interest of the press in convergence while not investing heavily in a consumer product that would have put me in a position for failure,” Jordan said.

When ScotteVest didn’t sell more than 200 units, it pulled the plug on that partnership. “There wasn’t enough fundamental business case for it beyond military applications or sporting or camping needs,” Jordan recalled. Jordan knows his company’s limits as far as convergence. “If I had gone as large as others into the space of building in sensors into jackets, which has been a hot button for years, I would not still be in business,” he said.

Making the Business Case for Convergence

Digital transformation can be uncomfortable, but if companies keep their customers’ needs in mind when they partner with companies in other industries, they’ll have a better chance at success.

Companies “need to constantly be trying to disrupt the status quo and understand if there’s a better way,” Kerravala said. “Because if they don’t, someone else is going to come along and do it.” Kerravala recommends that when C-level executives are considering whether to unite with companies from other industries, they should ask themselves: “How does bringing these two industries together really change the game?”

“[Companies] need to constantly be trying to disrupt the status quo and understand if there’s a better way. Because if they don’t, someone else is going to come along and do it.”
— Zeus Kerravala, ZK Research